Piercing the Corporate Veil: Assessing the Effectiveness of the Corporate Manslaughter and Corporate Homicide Act 2007 Ten Years On

Piercing the Corporate Veil: Assessing the Effectiveness of the Corporate Manslaughter and Corporate Homicide Act 2007 Ten Years On

Written by Etsuko Lim

On 14 June 2017, the Grenfell Tower in West London went up in flames in the most devastating tower block fire in British history. The world watched on, horrified, as desperate residents jumped from as high as 15 floors in last-ditch attempts to escape the engulfing flames. Mahboubeh Jamalvatan, who miraculously survived by crawling down the stairs from her third-floor flat, recounted that “it was mainly children and women who died… I saw them with my eyes, the people behind the windows, the children.”1 5 months later, the catastrophe continues to linger in our consciousness – a tragedy of such magnitude is impossible to forget. “I think about it all the time,” Mahboubeh says.

The Grenfell Tower Inquiry opened on 14 September 2017. Sir Martin Moore-Bick, heading the Inquiry, indicated that he “would not shrink” from making recommendations that criminal charges be brought against liable parties, whether individuals or corporations.2 Police investigating the fire have also indicated that they have “reasonable grounds” to suspect that corporate manslaughter may have been committed.3 This article seeks to evaluate the effectiveness of the Corporate Manslaughter and Corporate Homicide Act 2007 (“the Act”) based on its 10-year history thus far. While the Act covers bodies such as the police forces and various government departments,4 this article only seeks to focus on the Act as applied to corporate bodies.

Background

Prior to the inception of the Act, corporate entities could face prosecution for the common law offence of gross negligence manslaughter. However, a corporate entity could only be convicted of gross negligence manslaughter if a person in the organisation, who was sufficiently senior to represent the “controlling mind” of the company, was proved to have the requisite knowledge and fault required for the offence – a requirement known as the identification principle.5 In Tesco Supermarkets v Nattrass,6 agents of a company who qualified as its “controlling minds” were distinguished from those who did not, on the basis of whether things were done in the management and organisation of the company or at a purely operational level. The stringency of the “controlling minds” test made it near impossible to prosecute larger organisations where fatalities resulted from a series of management failures or the lack of a proper health and safety culture within the company, as these factors could not be attributed to the acts or omissions of any particular individual.7

In addition to the narrow applicability of gross negligence manslaughter to corporations, existing regulatory legislation was deeply inadequate and insufficiently punitive in light of abhorrent corporate wrongdoing. In 2007, following a blast that killed 9 workers and injured 40 others, ICL Plastics and ICL Tech were fined a measly sum of £400,000.8 The explosion was Scotland’s worst industrial disaster since 1988 and the tragedy could have been prevented had proper health and safety measures been implemented, but the penalties under the Health and Safety at Work Act 1974 (prior to amendments in 2009) largely comprised a limited range of fines. Penalties under existing legislation thus failed to deter and punish gross corporate negligence.

The Act

The Act came into force on 6 April 2008. S 1(1) of the Act sets out the new statutory offence of corporate manslaughter:9

An organisation to which this section applies is guilty of an offence if the way in which its activities are managed or organised –

a. causes a person’s death, and

b. amounts to a gross breach of a relevant duty of care owed by the organisation to the deceased.

S 1(3) provides that:

(3) An organisation is guilty of an offence under this section only if the way in which its activities are managed or organised by its senior management is a substantial element in the breach referred to in subsection (1).

The Act only applies to organisations, and individuals may still be prosecuted under the old law of gross negligence manslaughter.

Elements of the offence

In order to establish the offence of corporate manslaughter, the following elements have to be proved:10

The defendant is a qualifying organisation;

The organisation caused a person’s death;

There was a relevant duty of care owed by the organisation to the deceased;

There was a gross breach of that duty; and

A substantial element of that breach was in the way those activities were managed or organised by senior management.

This article will now briefly explain each of the above elements.

The defendant is a qualifying organization

S 1(2) states that:

(2) The organisations to which this section applies are—

a. a corporation;

b. a department or other body listed in Schedule 1;

c. a police force;

d. a partnership, or a trade union or employers’ association, that is an employer.

The organisation caused a person’s death

The same principles of causation that govern the common law offence of gross negligence manslaughter apply to corporate manslaughter. This means that the alleged breach of duty of care by the organisation must be a more than de minimis cause of death (Hughes).11

There was a relevant duty of care owed by the organisation to the deceased

S 2 sets out the meaning of “relevant duty of care”. S 2(1) clearly establishes that the relevant duty of care is to be one that is owed under the law of negligence:

(1) A “relevant duty of care”, in relation to an organisation, means any of the following duties owed by it under the law of negligence.

The relevant duties of care, as provided for under s 2(1), include:

a. a duty owed to its employees or to other persons working for the organisation or performing services for it;

b. a duty owed as occupier of premises;

c. a duty owed in connection with—

i. the supply by the organisation of goods or services (whether for consideration or not),

ii. the carrying on by the organisation of any construction or maintenance operations,

iii. the carrying on by the organisation of any other activity on a commercial basis, or

iv. the use or keeping by the organisation of any plant, vehicle or other thing.

There was a gross breach of the duty owed

Under s 1(4):

(4) A breach of a duty of care by an organisation is a “gross” breach if the conduct alleged to amount to a breach of that duty falls far below what can reasonably be expected of the organisation in the circumstances.

Where an organisation owed a relevant duty of care to a person and the jury has to decide if there was a gross breach of that duty, s 8(2) states that:

(2) The jury must consider whether the evidence shows that the organisation failed to comply with any health and safety legislation that relates to the alleged breach, and if so—

a. how serious that failure was;

b. how much of a risk of death it posed.

Additionally, s 8(3) provides that the jury may also:

a. consider the extent to which the evidence shows that there were attitudes, policies, systems or accepted practices within the organisation that were likely to have encouraged any such failure as is mentioned in subsection (2), or to have produced tolerance of it;

b. have regard to any health and safety guidance that relates to the alleged breach.

A substantial element of that breach was in the way those activities were managed/ organized by senior management

“Senior management” is defined in s 1(4) as such:

(4) For the purposes of this Act—

(…)

c. “senior management”, in relation to an organisation, means the persons who play significant roles in—

i. the making of decisions about how the whole or a substantial part of its activities are to be managed or organised, or

ii. the actual managing or organising of the whole or a substantial part of those activities.

Has the Act succeeded in achieving its aims?

Enlarged scope of corporate liability – or not

The Act was envisioned to circumvent the procedural deficiencies of prosecuting large corporations for systemic lapses in health and safety standards. In theory, it has widened the scope of corporate liability. The common law identification principle has been effectively abolished, since there is no statutory requirement that liability has to be determined exclusively by reference to the directing mind of a company.12 Instead, “the test of “senior management” [under s 1(4)] is arguably wider than the former ‘controlling mind’ [test] which effectively restricted the offence to actions of directors”.13 The Act’s acknowledgement of “senior management failure” is a recognition that corporate liability may arise in cases where a company’s liability cannot be attributed to a single individual of sufficient seniority to fulfil the “controlling mind” test.14

However, it is questionable if the refined “senior management” test has actually enlarged the scope of corporate liability in relation to its common law ancestor. The Act targets members of senior management who “…play significant roles…” and whose management or organisation amounts to a substantial element in the alleged breach.These provisions largely replicate the problems that plagued the old “identification principle”, and unwittingly continue the identification doctrine’s preoccupation with individual rather than systemic fault.15 The obvious vagueness of the terms “significant” and “substantial” aside, the relevant provisions of the Act mean that large corporations where decision-making and management are more easily delegated can more easily evade liability. The “senior management” test, then, has counter-productively allowed large companies to deflect liability more easily than small or medium enterprises. Moreover, the “senior management” test may simply create a perverse incentive for corporate entities to delegate decision-making and management in areas related to health and safety to personnel who fall below this bar and are thus immune from prosecution, thereby reducing the sting of the Act.16

More importantly, the “senior management” test remains mostly judicially untested. The first conviction secured under the Act, R v Cotswold Geotechnical (Holdings) Ltd,17 did not involve a thorough consideration of the test, since Cotswald Geotechnical only had eight employees – which led to McCluskey’s remarks that “the true test of the [Act] will come with a prosecution of a large company which has multiple directors which already purports to have compliant health and safety procedures”.18 4 years later, it seems as though the “true test” McCluskey spoke of remains illusory. Of the 21 convictions to date, 14 involved admissions of guilt, while none of the 3 acquittals thus far revolved on the application of the “senior management” test.

Under-utilisation of the Act in practice

In a heartening sign that convictions for corporate manslaughter have gathered pace, there were 12 convictions made between 2008 and 2015, and the number of active cases numbered 489 as of February 2014.19 In theory, the “senior management” test should render prosecution of larger corporations easier than under the previous regime, since it is in large, complex organisations where identification under the common law offence consistently failed.20

But the empirical reality suggests that an enhanced scheme of corporate liability under the Act may still be a pipe dream. Between 2008 and 2015, there were 63successful prosecutions for work fatalities (in comparison with 12 convictions under the Act), the majority of which were for breaches under the Health and Safety at Work Act 1974.21 This suggests that the Act pales in comparison to other legislative vehicles in prosecuting work-related fatalities; the lack of action is an “unfortunate sign of how unwieldy the act is”.22 In fact, the severe under-utilisation of the Act is evident from the table below, which details the number of charges brought for corporate manslaughter each year between 2015 and February 2016:23

Year

Number of charges brought for corporate manslaughter

2008

0

2009

1

2010

0

2011

1

2012

1

2013

5

2014

6

2015

5

2016 (Feb)

0

Furthermore, 20 of the 21 convictions that have been secured to date have concerned small to medium-sized enterprises (such as Pyranha Mouldings Ltd, Nicole Enterprises Ltd and Sterecycle (Rotherham) Ltd) – consequently, Tombs argues that the Act’s overwhelming targets could have been prosecuted under the existing common law.24 The stark absence of proceedings against large enterprises may reflect the prosecutorial difficulties arising from companies obfuscating and hiding their senior management behind “a cloak of darkness”,25 or simply a lack of prosecutorial appetite to commence action against major corporations with the financial muscle to withstand litigation.

Is the remit of the Act limited to a fault?

The Act’s exclusive focus on offences which result in death (s 1(1)(a)) glaringly omits liability for offences that cause injury falling short of death. Given that corporate negligence that results in death is much less statistically likely than that which causes injury,26 the Act’s noble aim of bringing corporations to justice for the most heinous transgressions may have unfortunately come at the expense of remedying everyday injustices that abound. In this regard, the application of the Act is heavily restricted.

The Act’s exclusive focus on organisational liability further comes at the cost of a failure to provide for the criminal liability of directors, corporate executives and managers who have contributed substantially to the organisation’s offence. While it may be argued that such high-ranking personnel may still be convicted of gross negligence manslaughter at common law, the common law offence requires a finding that the defendant owed the victim a duty of care,27 a requirement that is difficult to fulfil in cases where the victim was not an employee of the organisation and thus lacked proximity to the defendant. There are also often lingering uncertainties about whether duties of care are owed at common law in cases of manslaughter by omission.28 In contrast, while s 2(1) of the Act imports duties of care owed by an organisation “under the law of negligence”, it then proceeds to list the relevant duties of care in s 2(1)(a) to s 2(1)(d). Adopting a similar approach in respect of senior management of an organisation would inject much-needed legal clarity. In any case, this article also contests the need to show that the defendant owed the victim a pre-existing duty of care. It is questionable if civil law duties have any legitimacy in a criminal law context,29 as observed by the Court of Appeal in Wacker:

The criminal law has as its function the protection of citizens and gives effect to the state’s duty to try those who have deprived citizens of their rights of life, liberty or property. It may very well step in at the precise moment when civil courts withdraw because of this very different function. The withdrawal of a civil remedy has nothing to do with whether as a matter of public policy the criminal law applies. The criminal law should not be disapplied just because the civil law is disapplied. It has its own public policy aim which may require a different approach to the involvement of law.30

Incentive to adopt corporate best practices

S 8(3) allows (but does not require) the jury to consider “attitudes, policies, systems or accepted practices within the organisation that were likely to have encouraged any such failure… or to have produced tolerance of it”, and to “have regard to any health and safety guidance that relates to the alleged breach”. The possibility of a review of corporate culture thus creates a strong incentive for companies to adopt clear and rigorous health and safety standards. In the corporate sector where health and safety are largely secondary to profit maximization, the Act is a much needed impetus for health and safety to be regarded as more than just an afterthought.

The harsh penalties under the Act should also afford greater reason for compliance. If convicted, a company may be slapped with an unlimited fine (s 1(6) of the Act) – in other words, insolvency. S 9 permits a court to make a remedial order, under which the convicted company has to remedy the breach in question; s 10 allows for a court to order the convicted company to publicise the specific particulars of its conviction, which would surely amount to a devastating reputational blow. The stiffened penalties under the Act are highly welcome, given the regrettable history of companies shrugging off trivial fines in the wake of reprehensible derelictions of duty.

The sentencing guidelines of the Sentencing Council in 2015 suggested that judges should impose fines relative to the size of the convicted organisation, in order to ensure the fines are adequately punitive; firms with an annual turnover of more than £50m will face fines of up to £20m, and fines would seldom amount to less than £500, 000.31 However, it should be noted that of the 21 convictions secured to date, only 4 have attracted a sentence which reached the putative minimum figure of £500,000 under the original sentencing guidelines. The deterrent and punitive effects of the Act may therefore be stronger in theory than in practice, given the courts’ apparent unwillingness to utilise the full range of fines at their disposal when sentencing – though it is possible that the modest quantum of fines imposed thus far is simply a reflection of the fact that the Act’s main targets have been small to medium organisations.

Cogency of s 8(2)(b)

S 8(2)(b) of the Act requires the jury to consider the extent of the risk of death posed by the organisation’s alleged failure to comply with any health and safety legislation. This appears to amount to an evaluation of the foreseeability of the risk of death – an evaluation which seems impossible to carry out in relation to corporate entities. Lord Hoffmann has emphasised that corporations are only metaphysical entities,32 so the requirement of the foreseeability of risk of death cannot properly apply to them. Moreover, the Law Commission has noted that it would be logically impossible to hypothesise a human being who could be in the same position as the corporation.33 The fact that a jury will always be faced with a situation in which a risk had materialised, further suggests that there is a danger that juries will be inclined to conclude that the risk was, in fact, one which was foreseeable.34

Conclusion

The Act was founded with noble intentions, but it has been let down by a combination of the stringency of the “senior management” test, the Act’s narrow field of application, and judicial reluctance to utilise the full range of penalties at the courts’ disposal. Perhaps the greatest value of the Act lies in the symbolism of creating a statutory offence of “corporate manslaughter” – an unmistakable recognition of the grievous hurt that corporations may institutionally and collectively inflict. However, whether the Act’s symbolic function amounts to sufficient redemption remains to be seen.

S 1(5)(a) states that the offence is called “corporate manslaughter” under the law of England and Wales or Northern Ireland, while s 1(5)(b) states that the offence is called “corporate homicide” under the law of Scotland. The rest of this article shall refer to the offence as “corporate manslaughter”.

Gobert, James. “The Corporate Manslaughter and Corporate Homicide Act 2007 – Thirteen years in the making but was it worth the wait”? The Modern Law Review, 2008, vol. 71, no. 3, pp. 428.

Card, Richard. Card, Cross and Jones Criminal Law. OUP Oxford, 2010.

R v Cotswold Geotechnical (Holdings) Ltd [2011] EWCA Crim 1337.

McCluskey, David. “Will the new act begin with a whimper?” The Law Society Gazette, 3 March 2011, https://www.lawgazette.co.uk/law/will-the-new-act-begin-with-a-whimper/59382.article. Accessed 6 November 2017.

144 workers were killed in 2015-16, in comparison with 621, 000 estimated non-fatal injuries to workers during the same period. “Health and safety at work: summary statistics for Great Britain 2016”. Health and Safety Executive, 2016, http://www.hse.gov.uk/statistics/overall/hssh1516.pdf?pdf=hssh1516. Accessed 6 November 2017.